Brazil’s antitrust overhaul: less deals reviewed, more could be blocked

Fewer deals will face antitrust review under Brazil’s long-awaited antitrust bill, expected to soon be signed into law. But a larger number could be blocked.

The country’s Chamber of Deputies approved the bill on October 5 and it now only needs to be signed into law by the president before taking effect.

The law would regulators and reform the country’s antitrust review processes. The most important change is that the approval of the antitrust regulator, Administrative Council for Economic Defense (CADE), will be needed prior – rather than after – finalizing the transaction.

At the moment, competitively significant transactions are required to submit concentration acts for antitrust analysis 15 business days after an agreement has been reached.

“Under the current system, it is possible that a transaction closes and after a period, which may be of up to two years according to the current practice for complex cases, the transaction is rejected by the authorities”, said Fabiola Cammarota, a partner with Souza Cescon Barrieu & Flesch.

Companies have time to begin operations under the surviving entity during merger review, creating uncertainty and making it more difficult to implement structural remedies. This might be reason for the small number of blocked deals that get blocked under the existing regime in Brazil, according to Velloza e Girotto partner Cesar Amendolara.

“I’m thinking in this new situation maybe the antitrust (regulator) will be more empowered to block a deal because it hasn’t happened yet,” Amendolara said.

The proportion of reviewed deals that are blocked is expected to increase also as a result of a separate provision that is likely to drop the number of deals that trigger review.

At present, transactions in which either company has annual gross revenue of R$ 400 million (approximately & 217 million) or which lead to a greater than 20% share of the market trigger CADE review. The market share criterion is to be removed, and the revenue criteria made less stringent, under the pending legislation.

Following the law’s enactment, transaction would trigger CADE review if one of the parties met the R$ 400 million threshold and the other party reported annual gross revenue of R$ 30 million (approx. US$ 16.2 million).

“This is positive because it will dramatically decrease the number of concentration acts submitted to the authorities”, Peixoto & Cury lawyer Roberto de Marino Oliveira said.

“In accordance to current laws, simple transactions producing no adverse effects on competition have to be submitted to the authorities. It’s unnecessary (and) it doesn’t serve any purpose”, added Peixoto & Cury partner José Ricardo Martins.

It is unclear whether pending legislation would result in CADE blocking more deals, but the changes to suggest greater efficiency throughout the review process.

“We do not believe (merger review) will be stricter, but it will certainly be more detailed”, Cammarota said. “It is also expected that the parties will have more incentives to provide all the information that may be required for the analysis , so that the grating of the approval is not delayed.”

Time of review

The maximum time of review under pending legislation will be 330 days – much shorter than the existing term, especially considering that the analysis of some complex transactions takes up to two years.

“Antitrust specialists are kind of reluctant in believing CADE will be able to render a decision within this 330 day time”, Marino Oliveira said. “We know CADE is hiring 200 workers to fulfill this term obligation, (but) we will have to wait and see how things work”.

Amendolara is concerned CADE will take its time in reviewing middle market deals that will receive less press coverage and have fewer large interests pressing for a quick solution.

“If you’re talking about a mid-sized company that needs this investment in order to put money in the company, now we’re going to wait for review”, Amendolara said.

Structural Changes

The exising antitrust regulator is made up of three agencies – the Secretariat for Economic Monitoring (SEAE), the Secretariat for Economic Law (SDE), and CADE. This will be reorganised if the bill is signed into law.

Under the pending antitrust law, the SDE would merge into the CADE, an the SEAE would be dissolved. The CADE would include the Administrative Tribunal for Economic Defense, the General Superintendence (formerly the SDE) and the Department of Economic Studies.